Estate Planning End-of-Year Logjam: Estate Planners Brace for the Onslaught

“If you want to take advantage of this year’s gift tax reduction, I suggest you run, not walk to a competent estate planner,” warns Rocco Beatrice, Executive Manager of Estate Street Partners. The $10,240,000 gift tax exemption for couples ($5,120,000 for a single person) in 2012 is unprecedented. How unprecedented? At 12:01am on January 1st, this same exemption drops to $2,000,000 ($1,000,000 for a single person). “It seems that the smart business person is also a procrastinator when it comes to estate planning. All year I have talked to people who told me they need an estate plan but with the year ending, they are just coming through the door now,” proclaims Mr. Beatrice.

The people that are streaming through the doors are anyone with more than $1,000,000 in assets. In 2012 a couple can not only give more, but if they go over, the tax rate is only 35%. In 2013 any gift over $1,000,000 will incur a 55% tax rate. “With a house, investments and savings, people who don’t consider themselves wealthy go over that magic two-million mark. Without gifting their money this year, their estate could be taxed 55%, and that is not a small number. These are the forward-thinking people making calls and appointments,” explains Mr. Beatrice.

Estate planners offer many different strategies, but arguably the number one strategy to take advantage of the current large gift tax exemption is an irrevocable trust. These trusts are sophisticated instruments with many nuances that are written specifically for each client. They allow the grantor (person funding the trust) the ability to gift assets under the tax exemption for this year, but the assets are held for the beneficiaries, sometimes for many generations. Because of their sophistication, they take time to draft, time that clients and estate planners are running out of.

“There are only so many trusts that can be drafted before the end of the year. The deadline is looming and the number of hours in a day is finite,” opines Mr. Beatrice, “At some point, I think I am going to have to turn people away.” Some experts believe that when competent and meticulous estate planners begin turning people away, they will go to their local general practice lawyer or even a lawyer practicing in an unrelated area. “A trust drafted the wrong way may not accomplish what you want it to do,” warns Mr. Beatrice. “An extremely poorly drafted trust can cost you more money, time and effort than it saves. People need to be careful who it is that is drafting their trust.”

An irrevocable trust can accomplish many different goals all at the same time. Funded sooner rather than later, it allows a person to qualify for Medicaid when the time comes for nursing home care. A trust can protect assets in the event of a lawsuit or bankruptcy. It also provides a roadmap for how a person would like their funds used after they are gone. A trust can even provide for the care of a beloved pet. “People calling up trying to take advantage of the gift tax exemption are discovering all of the options open to them. This is great for them, but these requests add to the time it takes to draft them,” explains Mr. Beatrice.

So as 2012 comes to a close, those in the know are lining up to make sure that they preserve as much of their estate as they can. A metaphoric logjam at the doors of estate planning offices may prevent them from savings thousand to millions of dollars or force them into the offices of lawyers with little-to-no experience. “I don’t think people even realize what they are worth. If you add up your assets and the result is over $1,000,000 your best option is to make estate planning calls now. Even if you have a new business set to grow, you can put it in a trust now and let it grow estate and gift tax free. You won’t have to worry about it later,” urges Mr. Beatrice, “2012 is a great year to estate plan, but its coming to an end quickly.”